(Losing Your Tax Exemption for Failure to File Annual Returns for Three Years)
……And what to do next!
Have you been informed by the IRS that your nonprofit organization automatically lost its tax exemption for failure to file annual returns?
You are certainly not alone. Some 400,000 nonprofits have lost their tax exemption since 2010 because of a change in the law that requires almost all charities and nonprofits to file annual returns.
A little bit of background: A provision in the 2006 Pension Protection Act requires that any nonprofit or tax exempt organization (except churches and religious organizations) that does not file a 990 return for three consecutive years will automatically lose its tax exemption. While this law affects almost all nonprofit or tax exempt organizations, it particularly impacts small organizations that were not previously required to file returns with the IRS, and thus might not have been aware of the new requirement. Starting with returns for the 2007 tax year, small organizations (with gross receipts of less than $25,000 per year) have been required to complete a form 990-N annually in the form of an electronic postcard. Larger organizations (with gross receipts greater than $25,000) have always been required to file an annual 990 or 990-EZ informational return. Since 2010 that threshold has been raised to $50,000. Automatic revocation occurs on the filing due date of the third consecutive year that an organization has failed to file.
What is the impact of losing tax exemption?
Quite simply, your organization is no longer exempt from paying taxes and so may be liable for corporate or other types of taxes. Also, if you are a 501(c)(3), donations to your organization are no longer tax deductible. However, a new IRS procedure makes it easier for some nonprofits to apply to have their tax exemption backdated to the date when it was lost. See https://magillrumsey.com/practice-areas/nonprofit-and-tax-exempt-law/46-new-irs-procedures-for-automatically-revoked-organizations.html
What can you do?
You will need to reapply for tax exemption as soon as possible. This is true even if you did not have to apply for tax exemption before because you were a very small organization or were part of a group exemption. There will probably be a period of time, between losing your exemption and having it reinstated, when your organization will not be tax exempt. You should seek legal advice regarding consequences to your organization of any gap in its exempt status.
What if you think your organization has lost its exemption but you have not received a notice from the IRS?
Sometimes the IRS does not have a current address for an organization. However the IRS maintains a list of all organizations that have been automatically revoked. You can search the list at:
If you think that your organization may have lost its tax exemption, it is very important that you take action without delay.
For help with reinstating tax exemption for your organization, please contact us at firstname.lastname@example.org or call (734)995-2500 and ask to speak to one of our attorneys.
For more information, look at the FAQ page on the IRS website:
The Guidestar website has also put together som helpful information: